The Office of General Counsel issued the following
informal opinion on December 22, 2000 representing the position of the New York State
Insurance Department.

RE: Reinstatement Fee

Question Presented:

Is it permissible for an agency, which is
acting as program manager on behalf of an insurer, to charge a reinstatement fee in
connection with a livery policy that has been cancelled due to nonpayment?

Conclusion

An agency cannot charge a reinstatement fee
in connection with a livery policy that has been cancelled due to nonpayment.

Facts

An operater of an insurance agency is
involved in the marketing of various types of coverage, including automobile insurance for
livery vehicles. This agency is currently acting as the program manager, for an insurance
company in connection with a livery vehicle insurance program located in upstate New York.
In this capacity, it is responsible for many of the administrative functions ordinarily
handled by the insurer with respect to this book of business. It does not act in this
capacity for the insurer throughout the state and does not handle the rate or form filings
on the insurers behalf.

The agency noted a tendency by certain
insureds to repeatedly allow their policies to be cancelled for nonpayment of the premium.
This resulted in repeated cancellations and reinstatements of coverage on the same risk
and is unnecessarily burdensome to administer. The agency would favor charging a
reinstatement fee to insured policyholders to discourage this practice. Any reinstatement
fee would be imposed only with respect to policies in the book of business for which the
agency served as program manager.

Analysis

As a general rule, agents act only for the
insurer as principal and their compensation must come from that source alone. N.Y. Ins.
Law § 2314 (McKinney 2000) prohibits licensed insurers, their employees or
representatives, and brokers from charging a rate or premium that departs from filed (or
manual) rates in effect. To permit an insurer or its agent, who stands in the insurer's
shoes, to collect an additional amount of money, however denominated (such as a
reinstatement fee or service fee) would run counter to the purpose of having rate filing
and rate approvals in place for insurers. See Counsels Corner, The Bulletin
of New York State Insurance Department (March, 1991), and cases cited therein.

The only exceptions to §2314 are found in
N.Y. Ins. Law § 2119 (McKinney 2000). N.Y. Ins. Law § 2119(c) is limited to brokers, who
act for the insured, not for the insurer, and who charge a service fee in accordance with
the requirements of that section. Permitting agents to charge a service fee without
authorization under N. Y. Ins. Law § 2119(c) would create the anomalous situation of
allowing agents to charge fees without any restriction while brokers could only do so
within specific statutory limits. An insurance agent may receive additional compensation
from a client as authorized under N.Y. Ins. Law § 2119(a) for certain consultative
services, such as the "examining, appraising, reviewing or evaluating any policy,
bond, annuity or pension or profit-sharing contract, plan or program or for making
recommendations or giving advice with regard to any of the above. . . ." The proposed
reinstatement fee, however, could not be characterized as permissible compensation under
N.Y. Ins. Law § 2119 (a).

In conclusion, although an agent may be
entitled to fees for advising a party to be charged within the meaning of N.Y. Ins. Law §
2119(a) (McKinney 2000), such agent may not charge a fee for servicing or or performing
administrative functions with respect to insurance policies, irrespective of written
agreement.

For further information contact Supervising
Attorney Michael Campanelli at the Departments New York Office.